Investors bolster oversight in emerging-market private equity after Abraaj collapse

Investors in private equity funds that focus on emerging markets are tightening oversight after the collapse of a Middle East buyyout firm, a survey has found Many investors said they planned to put more money into such funds over the next two years, but also to install extra checks and balances, suggested the survey by the Emerging Markets Private Equity Association (EMPEA).
Dubai-based Abraaj Capital Ltd had been the largest buyout fund in the Middle East and North Africa until it fell apart last year after a dispute with investors, including the Gates Foundation, over a $1 billion healthcare fund. Two of its top executives have been arrested.
"The fallout has prompted many limited partners to expand the scope of their due diligence processes to include a closer look at the internal operations and governance arrangements of fund managers," EMPEA said. EMPEA surveyed institutions acting as limited partners, including pension funds, funds of funds and development banks, who collectively represent more than $6.9 trillion in total assets under management. Limited partners commit money to funds alongside private equity firms, known as general partners, who invest the fund's capital in companies.
Some Abraaj executives are facing charges in the United States that they defrauded their investors, including the Bill & Melinda Gates Foundation. The majority of institutions included in the Global Limited Partners Survey had implemented substantial changes to their due diligence practices, EMPEA said.
Nearly 44 percent of survey respondents had requested extra information from prospective general partners over the last two years. A total of 32 percent had updated their due diligence policies or guidelines. The same number had dedicated additional resources for due diligence, most likely because of the growing workload and specialised skills the process demands.
Still, the data suggested the Abraaj crisis has not put investors off private equity in emerging markets. Over half the respondents expected to commit more capital to such funds in the next two years, the first time since 2014 that more than half of the respondents said they plan to raise commitments. The proportion of investors who plan to raise the emerging- market share of their overall private equity portfolios reached its highest level in the last five years, EMPEA said.
For the second year in a row, Southeast Asia ranked as the most attractive market in the next 12 months, ahead of India and China. Russia and former Soviet states, Turkey and the Middle East were the least attractive. Investors cited political risk as the biggest deterrent to investing. The Middle East's slide down the rankings followed a year of geopolitical quandaries and questions about the region's governance standards, partly as a result of the meltdown of Abraaj.